Thursday, August 30, 2012

The Unlucky Country.

While everybody was distracted with Gina Rinehart's efforts to improve our quality of life by cutting our minimum wages and her taxes (cuts for everybody, hey!), Peter Martin (with Tim Colebatch) was busy reading Variant Perception's report entitled "Australia: the Unlucky Country".

This is what Martin says:
"Warning: After Boom it'll be Dutch and Go" (See here)
Say, what???
"AUSTRALIA faces a run on its currency, a deeper collapse in housing prices and a bank funding crisis to rival Europe's as it tries to come to grips with life after the mining boom, according to a report from a boutique US advisory firm.
(...)
" 'The mining sector has crowded out almost all other sectors of the economy and also funneled credit and liquidity into a housing bubble in the real estate sector,' says the report, which has been circulated among global money managers."

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At one hand, then, we get news of doom and gloom; at the other hand, we keep hearing that everything is hunky dory: "Mining Investment Boom Rolls on".

So, I suppose it's reassuring that our betters keep pumping money in mining.

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I won't tell you what's gonna happen: I don't know.

But I do know this: commodity prices have been falling and with them corporate profits and share prices. Take for instance BHP-Billiton's:

Click to enlarge.

In the year to August 30, BHP lost 16.75% 19.50% (close price today: AUD31.99).

Last May 17, the share price was lower: that's the red dot in the chart. That day Ian Verrender reported:

"BHP Chairman [Jac Nasser] Takes Shot at Canberra Over Industrial Relations and Tax Policies". (See here)

Having distributed tonnes of cash to shareholders via dividends and share buybacks, BHP decided that further investments had to be cut back: "It was only after the speech, when quizzed by reporters, that Nasser conceded the company would not proceed with plans announced last year to spend $80 billion on projects during the next three years".

Apparently, Verrender interpreted the "shots at Canberra over industrial relations and tax policies" as a bit of a diversionary tactic to keep shareholders busy bitching against the Government.

Without denying that, I, however, believe a cut in wages and taxes (does it sound familiar, re Rinehart today?) wouldn't hurt BHP's finances, either. Two birds with one stone.

Anyway, eight days ago, (part of) the announced cutback was named: Olympic Dam:

"BHP Billiton has taken the axe to more than $US30 billion in spending on Australian expansion projects, in the clearest sign yet that the nation is past the peak of its resources boom.
"BHP’s decision to change its strategy on its Olympic Dam expansion came as the company announced a 35% slide in net profit
" ' It doesn't really make a lot of sense in this market for them to be engaging in a major capital spending program and to be bringing more supply onto the market in a time when prices are softening,' said Gavin Wendt, publisher of resources newsletter Mine Life".

Considering this, I am not so sure it's such a good thing that other miners keep pumping money into mining.

But, hey, I'm just a commie on low wages, so who cares what I think?

Update:
02-09-2012. I've just read Ian Verrender's last column for the SMH. Together with Adele Horin and Ian McIlwraith, Verrender is leaving the SMH.

It's a curious thing how, after reading an author for a while, one feels like one knew them personally. As your regular reader, I'll miss you guys.

I wish the three of you the best of lucks and I hope I'll soon see your work again.

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